Microeconomics - Chapter 4.docx

Microeconomics – Chapter 4 (Market Force for Supply & Demand)
Market – Group of buyers/sellers at a particular moment (Not necessarily at the same place)
Competitive Market – Many buyers/sellers, each with a negligible effect on price
Perfect Competitive Market – All goods are considered the same
- So many buyers and sellers that none of them effect the price (Price-takers)
Quantity Demanded – Amount of goods that buyers are willing/able to purchase
Law of Demand: When the price of a good rises, the quantity demanded falls (Other things
equal)
Demand Schedule – Table that shows the
relationship between price of a good and
quantity demanded
- Demand curve is based off of this
Market Demand – Sum of all individual
demands
- Demand curve shows how price affect
quantity demanded (Other things
equal)
Demand Curve shifts:
# of buyers – Increases quantity demanded, resulting in a shift to the right
Normal Goods – Positively related to income (As
income increases, good demand increases)
- Ex. Fancy dinners
Income changes – As income increases, demand
increases resulting in shift to the right
Inferior Goods – Negatively related to income (As
income increases, good demand decreases)
- Ex. Kraft Dinner packets
Income changes – As income increases, demand
decreases resulting in shift to the left
Substitutes – When price of one good increases, demand for another good increases
- Ex. If Coke raises their prices, demand for Pepsi would increase
Compliments – When price of one good increases, demand for another good decreases
- Ex. If computer prices rise, demand for hardware would decrease
Tastes – As more people enjoy one type of good, demand for it increases resulting in shift to the
right
Expectations – Ex. If people are going to get laid off, demand for a luxury goes down, shift to the
left Quantity Supplied – Amount that sellers and willing and able to sell
Law of Supply: When the price of goods increases, the quantity supplied will increase (Other
things equal)
Supply Schedule – Table that shows the
relationship between the price of a good and
the quantity supplied
- Supply curve based off of this
Market Supply – Sum of all quantities
supplied
- Supply curve shows how price affects
quantities supplied (Other things
equal)
Supply Curve Shifts:
Input Prices – Fall in input prices makes production more profitable at output prices, S curve
shifts right
- Ex. Wages or Price of Raw Materials (Factors of
Production)
Technology – Determines how much input is required
for the output
- Ex. Cost-saving technological improvement
results in